Audit Quality and Properties of Analyst Earnings Forecasts
Bruce K. Behn
University of Tennessee, Knoxville - College of Business Administration
Seoul National University - College of Business Administration
McMaster University - DeGroote School of Business
September 15, 2007
Under the assumption that audit quality relates positively to unobservable financial reporting reliability, we investigate whether audit quality is associated with the predictability of accounting earnings by focusing on analyst earnings forecast properties. The evidence shows that analysts' earnings forecast accuracy is higher and the forecast dispersion is smaller for firms audited by a Big Five auditor. We further find that auditor industry specialization is associated with higher forecast accuracy and less forecast dispersion in the non-Big Five auditor sample but not in the Big Five auditor sample. Overall, our results suggest that high quality audit provided by Big Five auditors and industry specialist non-Big Five auditors is associated with better forecasting performance by analysts.
Number of Pages in PDF File: 39
Keywords: Audit Quality, Analyst Earnings Forecast, Forecast Accuracy and Dispersion
JEL Classification: M41, M43, M49, G29
Date posted: September 14, 2007
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